Legal and regulatory updates

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (the “Recast Insolvency Regulation“) applies to insolvency proceedings opened after 26 June 2017. Ordinance of 2 November 2017 (the “Ordinance“) amended the French Code de commerce to reflect the Recast Insolvency Regulation by inserting a new Title IX into Book VI. Continue Reading Insolvency Proceedings: ordinance adapting the French Code de commerce to the EU Regulation of May 2015 on insolvency proceedings

On February 27, 2018, the U.S. Supreme Court resolved a circuit split under the Bankruptcy Code and determined that where funds passed through financial institutions acting as payment conduits, where the ultimate transfer sought to be avoided was not the type of transaction protected by the safe harbor provisions of the Bankruptcy Code, the safe harbor provisions of Bankruptcy Code Section 546(e), shielding transfers through financial institutions from avoidance actions by bankruptcy trustees, was inapplicable.

The Supreme Court found that prior circuit decisions applying the safe harbor simply because financial institutions were intermediaries in the transfer is not consistent with the language or intent of the safe harbor provisions. Continue Reading Supreme Court Narrows Scope of Safe Harbor Exception for Securities Clawbacks

It’s an open secret that the commendable goals envisaged by the legislature with the introduction of the business rescue proceedings in Chapter 6 of our Companies Act are being hampered as a result of poorly drafted statutory provisions that govern the business rescue process.  Section 141(2)(a)(ii) is however not one of these vague provisions. In Western Crown Properties 61 (Pty) Ltd vs Able Walling Solutions (Pty) Ltd & Others/ 8073/16, the Western Cape High Court considered this provision and whether a business rescue practitioner can merely file a notice for the termination of the business rescue proceedings without applying to court to liquidate the company.  Continue Reading Taking the easy way out of business rescue proceedings

The English High Court has decided that collapsed retailer British Home Stores cannot challenge its own company voluntary arrangement as an unenforceable contractual penalty and must repay rental discounts to its landlords (Anthony John Wright and Geoffrey Paul Rowley as joint liquidators of SHB Realisations Limited (formerly BHS Limited) (in liquidation) v The Prudential Assurance Company Limited [2018], decision handed down on 6 March 2018)

The case, in which Hogan Lovells represented the successful landlord, provides important guidance on the operation of company voluntary arrangements (CVAs), particularly after termination, and the payment of rent as an expense of a company’s administration in priority to other debts. Continue Reading BHS Company Voluntary Arrangement – Landlords Win on Penalties

 

In January 2018 the English High Court considered whether it had jurisdiction under the Cross-Border Insolvency Regulations 2006 (CBIR) to extend a temporary stay on the commencement of enforcement action in respect of English law debt obligations owed by a foreign debtor so that in effect the stay became permanent, or whether such a permanent stay would breach the long established rule in Gibbs[1](which provides that the discharge of an English law governed debt under the insolvency laws of a foreign jurisdiction outside of England and Wales is not a valid discharge of such debt).  Ultimately, the court found that ordering a permanent stay would substantively affect the creditors’ rights and amount to a discharge of the English debts, in breach of the rule in Gibbs, and that the CBIR could not be used to modify that rule.

[1] Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Mataux (1890) 25 QBD 399 Continue Reading “Stayin’ Alive” – English Court confirms CBIR doesn’t override the rule in Gibbs

On 8 February 2018, the Hong Kong Court of First Instance (the “Hong Kong Court“) ruled in Re Supreme Tycoon Limited [2018] HKCFI 277 that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations. This is the first authority on this issue in Hong Kong. Continue Reading Hong Kong Court confirms common law recognition and assistance for foreign voluntary liquidations

Another step towards a lender-friendly environment, but the new form of pledge is being delayed

The Italian Parliament passed law No. 155 of 19 October 2017 to delegate the Government to reform the rules on insolvency and financial distress. This has been commented widely in the press and between commentantors, as it is expected to bring about significant developments (we have previously reported here).

What has received less attention, is that the law also mandates Government to reorganise the system of legal priorities (privilegi), i.e. the rights of preference set out at law for given claims to have preference over other creditors. Further, the delegation includes the authority to introduce a form of non-possessory security over moveable assets. Continue Reading Italy to revamp the system of legal priorities, and introduce non-possessory security

On 9 November 2017, in a rare example of a contested recognition hearing, His Honour Judge Paul Matthews granted recognition of Agrokor’s extraordinary administration (EA) as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (CBIR).

Agrokor d.d. is the holding company for a group of companies specialising in agriculture, food production and related activities in Croatia.  Before its financial difficulties, the group’s annual revenue was estimated to amount to around 15% of Croatia’s GDP.  On 6 April 2017, the Law on Extraordinary Administration Proceeding of Companies of Systemic Importance for the Republic of Croatia (the Law, also known as Lex Agrokor) became effective.  On 10 April 2017, following an application by Agrokor, an order for extraordinary administration (EA) was made in respect of Agrokor itself and 50 of its affiliates. In July 2017, Agrokor applied to the English court for recognition of the EA as a foreign proceeding under the CBIR.  A proceeding will be a foreign proceeding if it is “…a collective judicial or administrative proceeding in a foreign State…pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation”  The recognition application was challenged by one of Agrokor’s largest creditors, who had also brought arbitration proceedings in the English courts, on a number of grounds, all of which were dismissed by the court.

A Hogan Lovells team led by partner Tom Astle is acting for an adhoc committee of bondholders, and providers of a c€1bn super senior DIP facility to the Agrokor Group.

Continue Reading English recognition for Agrokor insolvency: not a tick-box exercise

What has the U.S. Fish and Wildlife Service got in common with the U.S. banking agencies?  Simple: the U.S. Government Accountability Office (the “GAO“), which investigates financial matters on behalf of Congress, has opined that both have wrongly published general statements of policy which are in fact rules under the Congressional Review Act (the “CRA“). The GAO issued an opinion on 19 October 2017 that the Leveraged Lending Guidance (being the final interagency guidance on Leveraged Lending issued on 22 March 2013 jointly by the US banking agencies) (“LLG”) is a rule subject to the requirements of the CRA, meaning that it should have been submitted to each House of Congress before it was implemented, and opening the door for the possibility of it being overturned. This is notwithstanding that the LLG explicitly states that it is not a rule – the GAO has reiterated that an agency’s characterization is not determinative of whether it is a rule under the CRA, and the LLG does not meet any of the CRA exceptions.

What does this mean? Read our full bulletin to find out!

On 24 October 2017 the Court of Appeal handed down its decision in what has become known as the Waterfall IIA and B litigation (Burlington Loan Management Limited and others v Lomas and others [2017] EWCA Civ 1462).  The decision also covered an appeal of one point from the High Court Waterfall IIC decision.  A number of the issues originally intended to be covered in the appeal fell away following the earlier Supreme Court decision in Waterfall I (see the joint administrators of LB Holdings Intermediate 2 Ltd v the joint administrators of Lehman Brothers International (Europe) [2017] UKSC 38).  The remaining  issues concerned the calculation of, and the entitlement of creditors to, statutory interest, in accordance with Rule 2.88 under the Insolvency Rules 1986.  By way of background, as it relevant for a number of the issues forming the subject of the appeal, under Rule 2.88(9) statutory interest accrues either at the rate specified in s.17 Judgments Act 1838 or the “rate applicable to the debt apart from the administration”, whichever is the higher.

Litigation over statutory interest is rare because statutory interest is only payable once all provable debts have been paid in full.  However, following the payment in full of all provable debts, there remains in the LBIE estate a surplus of c.£7.9bn.  There are, accordingly, significant amounts at stake in the litigation.

Continue Reading The latest in the Lehman Waterfall litigation